Preparing for your...
Initial Public Offering
An Interview with
William Knoke, founder of Harvard Capital Group.
and Cons of an IPO
How to Get the Best Valuation
How to Get a Top Prospectus
The IPO Process
What is the Target Profile
How to Get Started
I've been thinking about doing an Initial Public Offering.
Are there alternatives?
Going public has pluses and minuses. First, we need to explore why you want to
do an IPO. There might be some other ways to solve the problem. For example, if
you need more cash, long-term debt is sometimes cheaper (but riskier). If you
need non-cash resources, a merger, acquisition, or joint venture might be best.
If an IPO is best, we can help position you to get the best valuation.
CEO: What are the advantages of an
Knoke: Public offerings are great if you want shareholder
liquidity to diversify your wealth. It can also bring cash into the company for
expansion. Being public also makes customers feel more comfortable that you are
finally a mature, stable company. It makes it easier to use stock options to
attract key employees. You can even use the "funny money" of stock
certificates to acquire other companies without cash.
So why doesn't everybody go public?
Knoke: There are some disadvantages too. It puts you in the
fishbowl. Everything you do becomes public record: your salary, your strategic
alliances, and your profit and losses. A lot of time is spent on SEC (Securities
and Exchange Commission) reporting regulations, and handholding shareholders.
Also, in some cases, the company just hasn't positioned itself to get the best
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CEO: How can I improve the valuation?
Knoke: For the best valuation, get started at
least a year (or more!) in advance of your IPO. We call it "Pre-IPO
Housekeeping." It starts with working toward diversified, positive sales
growth, and profitability. We need to get you in shape to have three years of
How about your capital structure? We need to have an appropriate number of
issued and authorized shares, and to get rid of Preferred Stock. Conflicts of
interest involving parent or daughter companies have to be removed.
Let's shift your Board to include some well-known outsiders, and see how we
can streamline management with some heavyweights. These things and others affect
CEO: How about going public via a reverse
Knoke: Don't do it. A reverse merger is finding a defunct public
company, and having it acquire you to go public. They do not create a market for
your stock, the inherited shareholders are not bonded to your industry, there
are potential unseen liabilities in the shell company, and there is a big stigma
on these in Wall Street. If you want the best valuation, it has to go public in
the proper way.
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CEO: Okay, so after our housekeeping, what's
The next step is preparing the "Black Book" that defines the company
and its prospects. It allows us to flesh out how your company looks on paper,
and to ensure that we have no contradictions in strategy or operations. These
and other anomalies get flushed out in advance to yield the best possible
valuation downstream. For many companies, writing the Black Book actually
becomes the galvanizing force that leads to complete housekeeping.
The Black Book will later be used to allow the prospective underwriter to
visualize how you will look in the final IPO, how to market you and what your
prospects are. It is vital to prepare this before approaching an underwriter for
your IPO. The universe of underwriters for any size company and industry is
limited. You've got to get it right on the first visit.
CEO: Why else is the Black Book important?
Knoke: The Pre-IPO Black Book does much more than impress
investment bankers. It forms the foundation for the attorneys to draft the
appropriate language for the Registration Statement (S-1) required by the SEC,
and that forms the basic sales "brochure" to the public.
Remember that the Black Book is the vital link between the Company and the
investor. As a marketing document, it must be concisely written, interesting,
and with thematic focus. As a business document, it must be logically consistent
so that marketing, production, organizational and financial policies hang
together in a focused strategy. As an informational document, it must provide
the necessary decisional information to allow an incoming investor to evaluate
fully the merits of the prospective deal. As a legal document, it must contain
full disclosures and an appropriate financial structure.
CEO: Should attorneys write the Registration
A Registration Statement has to be a sales brochure, a business plan, a full
disclosure and a legal document all rolled into one. Too often, deals do not
realize their full potential because the offering documents have lost their
soul, and the reader is left to wonder why the company even exists.
The Harvard Capital Group understands this. We are specialists at putting
your company in the best light, while making full disclosures and minimizing the
legal downsides. We take pride in the fact that attorneys praise our work, and make only
minor, if any, revisions in our output.
CEO: What are your skills in writing the Black
Knoke: I personally take a critical role in each Black Book
crafted by the Harvard Capital Group. My book Bold New World: The Essential Road
Map to the 21st Century is an international bestseller, now in ten languages. I
also have lots of experience as an investment banker, with degrees from Harvard
Business School (MBA), and Stanford University (cum laude Economics). People
have said our Black Books are the best in the industry.
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CEO: How do we select the underwriter?
There is no "best" underwriter. Some are better for Internet
companies, others for manufacturing companies. Some are better for national
deals, others for local brand names. Who is best at what is also somewhat
dynamic, depending on latest successes and who is now working where. The Harvard
Capital Group can help you target the right underwriter and set up an
introductory meeting. It is best to target well, and focus on that underwriter, or a small group of
A solid Black Book is essential for these early stages. It sets the first
impressions and will determine whether they pull the plug, or take the next
step. The Black Book will give them a good idea of the look and feel of the
final Registration Statement, and will help everyone avoid surprises downstream.
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CEO: Once the underwriter is selected, what
Knoke: Once the underwriter is selected, there will be an all
hands meeting involving the Harvard Capital Group, your management team, along
with your underwriter, attorney, and accountant. This meeting will be to divide
the workflow to prepare the formal registration. This is where the Black Book we
prepared will save a bundle of money, as most of the work will have already been
done. The underwriter and your attorney will still need to undertake a "due
diligence" to check out facts, or to reformat or add some sections. But the
Black Book already prepared has the potential to accelerate this process and
save perhaps hundreds of billable attorney hours.
CEO: What about the road shows?
At some point, the Registration Statement has been filed and is about to be made
effective by the SEC. Just prior to going public, you and your management team
will travel around the country touting the merits of your company to key
stockbrokers. Again, the Harvard Capital Group can help your team prepare for
In my earlier years, I was an officer in a publicly held corporation that was
listed by the Wall Street Journal as among the top ten performing stocks in the
U.S. Since my job was the strategic planning guru for the company, I also got
pulled into doing the road shows. More recently, I've become an internationally
recognized speaker, and have been featured in countless press interviews. Our
team can help you condense the Black Book into a coherent audio-visual
presentation to maximize your potential valuation.
CEO: What happens after the road show?
Knoke: When the deal finally becomes effective, there is a short
window of just a few days and the stock is sold. You are now public and your
bank coffers are overflowing.
The Harvard Capital Group was there
at each step to help you focus your company, and maximize its shareholder value.
If the Black Book is implemented as planned, the valuations should stay high.
And when you are ready for a merger or acquisition, we are ready for that too.
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Target Client Profile (for IPOs)
kinds of clients are you looking for?
We do not
accept all companies as clients. Our
ideal profile is defined below:
Is the product/service sufficiently
differentiated from others to dominate its own niche? Is there
broad patent protection already in place or a first-mover
revenues at least $5 million, with positive growth? Is the company
profitable? Are the sales diversified amongst many
customers? Does a big-name accounting firm audit the financial
management team both broad and deep? Are some of the members from
"home-run" companies that have hit the ball outside the
The Company should have a clear
growth plan going forward, that is consistent with industry
the Company structured properly without conflicts of interest with
parent or daughter companies not under the umbrella going forward? Have
any outstanding lawsuits -- particularly involving ownership of key
intellectual property -- been settled and closed? Are privileged
shareholders (such as holder of Preferred Stock) being converted to
Common Stock prior to the offering?
located in Western U.S.
can look at any industry, but prefer one of those below.
Industrial Products &
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do we get started?
Knoke: If you want to take the next step,
suspect you want to act quickly.